Taming the Beast: Wall Street's Imperfect Answers to Making Money

Summary

• Thomas Rowe Price comes the closest to being the Ben Graham of growth. The founder of investment firm T. Rowe Price, he laid down rules for discovering which growth issues were worthwhile. He wanted stocks with a 10 percent return on capital, plus widening sales and earnings. He believed stocks have life cycles, and the best time to invest is early.
• Value stocks usually do best coming out of an economic downturn, but growth prevailed following the Great Recession due to the prevalence of devastated financial shares in the value category. Many studies have shown value beating growth over time, yet some eras belong to growth, such as the 1960s and 1990s, and avoiding it then would be ridiculous.
• Stellar individual growth names like Google can do relatively well when a recession hits. Krispy Kreme is a sad example of a faddish growth stock that has faded.
• The ultimate growth shop was Janus Capital, highly popular in the 1990s, as it scored soaring returns from the tech craze. Thomas Price thought it wise to diversify out of growth, although Janus didn’t heed that wisdom and stayed in tech too long. Janus suffered when tech crashed. It now is more conservative, not the hotshot it had been.
• Momentum investing—simply buying what is going up—is derided as a mindless exercise. Not always, however. Cliff Asness’s AQR formed a growth index that, according to its back-testing, beat the Russell growth and value indexes over three decades. The Asness formula is to take the top third of ...